With Egypt’s foreign reserves exhausting, tourism industry drying up, and no International Monetary Fund (IMF) deal within sight, the Arab world’s most populous nation is fast lurching towards economic collapse. Ahram Online reported that the government is now facing difficulties providing cash to cover the purchase of essential commodities, including food and energy. Stocks of imported and local wheat fell to just 2.207 million tonnes by 13 March, enough to last for less than three months.

Egyptians riot as economy nears collapse

Egypt’s official foreign reserves, around $36 billion before the revolution of January 2011, have tumbled below $13 billion, barely enough to cover three months worth of imports. What’s more depressing is that half of those money cannot be touched, since it consists of recent deposits in Egypt’s central bank from brotherly states like Qatar ($5 billion), Saudi Arabia and Turkey ($1 billion each)

As the country’s economy worsens, even rich Gulf monarchies now say they are not in the mood to pump in more money, so Egypt has turned to poorer states such as Iraq and Libya to fill the central bank’s vaults. But even if they cough up, this would improve only the numbers, not the reality.

And the reality is that virtually every economic indicator points to trouble. The Egyptian pound has slid 10 percent since January. Unemployment is as high as 20 percent. The stock exchange has slumped by one-tenth year-to-date. Tourism, which used to account for 12 percent of Egypt’s GDP, has evaporated. Foreign investment is near zero, and many of Egypt’s most dynamic businessmen have fled. The price of food is soaring to a point where some family now have difficulties buying bread. A quarter of Egypt’s 83 million people live below the poverty line.

Social unrest in Egypt as economy descends into chaos

To prevent its currency from plunging further, Egypt has imposed increasingly stringent exchange controls, and these measures are beginning to throttle trade and foreign investment. Some imported medicines, for example, have vanished from pharmacies, and investment brokers now warn their foreign clients of trouble repatriating funds back to their countries. It is of no wonder that not much new money is coming into Egypt.

Falling currency has pushed up inflation from less than 5 percent in December to 8 percent in February. That is particularly grim for Egypt’s growing number of unemployed. One labor group reports at least 4,500 factories have closed since the revolution, and now the country is witnessing a surge in crime and plethora of unlicensed street markets that are swamping Egyptian cities.

Thousands of workers in the tourism industry are now idle. Beach resorts in Egypt kept slashing prices, while other tourist draws such as the Pyramids, the Valley of the Kings and cruise-boats on the Nile are eerily empty. The government’s budget deficit, meanwhile, looks set to hit a sickly 12 percent of GDP by the end of June, far worse than its earlier target of 9.5 percent. This translated into a hazardous full year count of 24 percent. By comparison, the United States is expecting a 5.5 percent deficit this year.

President Morsi called on Arab states to help prevent an Egyptian collapse

“Let’s face it, apart from Qatar, none of the Arab Gulf States is willing to generate funds for this regime. I am telling you, they are actually cutting down on their existing investments in Egypt,” said a leading businessman who is in partnership with top Arab Gulf entrepreneurs.

But even so, Qatar, according to a well-informed Doha-based source, is not coming forward with much more. “The Qataris are not amused by the negative public and media perception of their assistance to Egypt,” he said. Qatari Finance Minister Youssef Kamal recently said his country did not expect to give further financial aid to Egypt “in the immediate term.” The United Arab Emirates, another wealthy Gulf country, makes no secret of its dislike towards the new Muslim Brotherhood leadership in Egypt.

Dr. Mohamed Noman Galal, a member of the Egyptian Council for Foreign Relations, said it is time Egypt adopts the Chinese economic model, emphasizing China’s trajectory from a near-bankrupt poor nation in 1950s to the world’s second largest economy today. China said it understands the temporary difficulties facing Egypt, and added that it is ready to aid Arab and Islamic countries weather their economic woes, though it would not want to overstretch itself.

China may come to Egypt’s rescue, but wants something in exchange

China, who is now holding the world’s biggest foreign reserves, has been lending money to the United States. It is at the moment the top foreign creditor to that nation. The Asian giant is also injecting money to help stabilize the European monetary mechanisms. The U.S. and Europe import a huge chunk of Chinese manufactures and their economic stability is essential to China. To meet the demands of its growing economy, China is also providing developmental aid and loans to Africa states in exchange for tapping into their massive natural resources.

Egypt may have what the Chinese wanted - the Suez Canal. Amid the Greek crisis, China has conducted a financial arrangement to take over the Piraeus port for 35 years, a strategic gateway to the Eastern Mediterranean. If the Egyptians are willing to put up the canal for lease, the Chinese might be interested to buy. Sudan, Egypt’s southern neighbor, faced a budget crisis earlier this year and was saved after China wrote a $1.5 billion cheque to its treasuries. In return, the Chinese secured rights to the Sudanese oil and mineral blocks.

The request to deposit $2 billion into the Central Bank of Egypt was rejected by Libya, though the Libyans have agreed to pump 900,000 barrels of oil a month on credit starting in April to support the Egyptian economy. The rescue comes as Egypt has been stressed by fuel shortages since last year.

Life in Egypt is becoming increasingly desperate

A Libyan central bank official told Reuters that the stability of Egypt is vital to Libya. “Libya owns stakes in three banks in Egypt and companies in various sectors. We will invest whenever these companies need liquidity, debt repayments and capital for operation,” he said, declining to be identified. “Our investments in Egypt are very strategic and we will do what's needed to support that. Egypt's security and stability are as important to us as our own,” he added.

Libyan oil minister, Abdul-Bari Al-Aroussi said Libya plans to refine some of its crude oil in Egyptian refineries to support the Egyptian economy which is struggling after more than two years of political unrest. Iraq similarly rejected the request to transfer $4 billion, and likewise will sell 4 million barrels of oil to Egypt on credit. An unnamed Iraqi official said on Friday that it is “too risky” to deposit such a large sum in Egypt.

The Egyptian government spends $20 billion on subsidies every year, half of it in fuel subsidy. Fuel powers not only the country’s commercial transport fleet but also the irrigation pumps used by millions of poor farmers; without it Egypt’s precious farmland would wither, and the current fuel shortage is wrecking the country’s already critical economy.

As economy falters, poverty rises in Egypt

Egypt is currently negotiating a $4.8 billion loan with the IMF, whose approval could unlock as much as $15 billion in multilateral aid from other institutions like the World Bank and European Union. The IMF wants Egypt to remove its subsidies to balance the deficit. Such measure however, is unpopular and the Egyptian government is terrified to implement it, fearing popular unrest like the one 2 years ago that toppled former president Hosni Mubarak.

As Egypt’s economy is edging closer towards collapse, its biggest financial backer Qatar appears to be bowing out. “On the Qatari side, they are putting their money into a bit of a black hole,” Michael Stephens, a researcher at the Royal United Services Institute think-tank in Qatar said. Gas-rich Qatar has already given Egypt $5 billion.

Stephens says that in addition to diplomatic clout, Qatar likely also looked for preferential business deals in Egypt, particularly in the construction sector. But with economic mismanagement and endless political turmoil, Qatar is likely to review its policy of lavishing billions on an unpredictable regime. “Qatari decision-makers could be saying: It doesn’t make sense to have the perception that we have adopted Egypt,” he said. “The cost would be huge.”

Desperate Egyptians lining up to buy subsidized breads

In terms of GDP per capita, Qatar is the wealthiest in Middle East, in fact, also the world. But no one, no matter how rich they might be, would like to burn money continuously for no purpose.